Potentially Exempt Transfer (PET) Outright gifts such as cash sums or transfers into absolute/bare trusts are PETs. The rules state that the individual has to survive for 7 years after making the gift for it to be exempt.
What gifts are potentially exempt transfers?
You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’. You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.
What is the 14 year rule in inheritance tax?
This is often referred to as ‘the 14 year rule’. The tax on gifts in the seven years before death must be recalculated at the death rate of 40%. Any chargeable transfers in the seven years prior to the gift will reduce the available nil rate band for the gift being re-assessed, and so increase the tax on it.
What is the difference between a pet and a chargeable lifetime transfer?
All gifts between individuals are PETs. A PET is treated as an exempt transfer while the donor is alive, and so PETs will not give rise to a lifetime IHT charge. A PET becomes an exempt transfer if the donor survives for seven years from the date of the gift.
When do you have to pay tax on gifts before the 7 year rule?
(NB BKDs comment re chargeable transfers in the 7 years prior to the 7 years before death which could also affect the calculations but assuming there are none in this case). If there are subsequent gifts which use up all of the NRB , then the later gifts may be liable to IHT if donor dies within 7 years.
Is there a limit to how much you can gift to a pet?
So there’s no limit on how much can be gifted in this way without an immediate lifetime tax charge. If the donor survives a PET by seven years, it becomes ‘exempt’ and will be outside the estate for IHT.
Is the 7 year rule the same as the 14 year rule?
Gifts to Discretionary Trusts on the other hand are chargeable at the time of making the gift if the total of such gifts exceeds the NRB over a rolling 7 year period. I still can’t see how the 7 year rule translates to a 14 year rule.
Do you have to Live 7 years after a gift?
Yes, he still needs to live seven years after the gift (I’m assuming here that it’s an outright gift and not a gift with reservation). When a person dies the final IHT bill is calculated on the value of their estate plus gifts made in the last seven years less any applicable reliefs.
